Quick Fixes Sought for Defense Industry

Erwin, Sandra I., National Defense

The Pentagon's high-level panel of outside advisors, known as the Defense Science Board, is expected to brief the defense secretary next month on how the department's procurement policies affect the financial health of contractors.

Overall, this appears to be a useful exercise, triggered by some unexpected developments in the industry. One was the financial woes experienced by two of the Pentagon's top contractors, Lockheed Martin and Raytheon Company. The realization that even large, powerful firms are vulnerable in the financial markets caught Pentagon officials unprepared.

"I have asked the Defense Science Board to look at ways in which we might either alter, modify our contracting policies, find out ways in which we can be helpful to the industry ... They will come back to me with recommendations by mid-March or April," said Defense Secretary William S. Cohen during a recent breakfast with reporters.

It seems odd, however, that the Pentagon would kick off a comprehensive policy review during the final months of the current administration. These are the sort of efforts that, typically, have more credibility at the outset of an administration's four-year term.

But the Pentagon's acquisition chief, Jacques S. Gansler, offered enthusiastic support for the panel's work, even if it comes during this time of "short-term transition," Gansler told an industry conference sponsored by the American Institute of Astronautics and Aeronautics (AIAA) in Washington, D.C.

"We are going to listen to experts from all fields: Congress, universities, Wall Street, government, representatives from commercial and military industries," he added. Key topics to be discussed include research and development, price-based contracting, industry competition and accounting standards. A broad spectrum of issues, indeed.

The DSB group, chaired by Philip Odeen, of TRW Inc., will look at possible changes in procurement policies and practices in order to "strengthen our defense industrial base, while gaining in cost and performance," said Gansler. "They already have identified a number of promising changes that will simultaneously benefit both the Defense Department and industry," said Gansler. He also stressed that, "Our focus has to be on implementation tactics, not on studies."

That is hard for many industry executives to believe. Several industry experts, in interviews, said the timing couldn't be worse. They cited not only the short time remaining before the end of the Clinton administration but also the fact that electoral politics are in play. In addition, the Pentagon is scheduled to begin the mandatory Quadrennial Defense Review of defense requirements next spring. The review will be a massive undertaking that will demand undivided attention from the new leadership at the Pentagon.

"It's always tough when you are in the last year of an administration," noted Johnnie E. Wilson, retired general who ran the Army Materiel Command, a nearly $20 billion operation that makes heavy use of contractors. Wilson is president of Dimensions International, a high-tech firm in Alexandria, Va. "It's going to be tough to make much happen this year," he said in an interview.

One problem that has plagued Pentagon policy-makers, suggested Wilson, is a tendency to bite off more than they can chew. "What I have said to the guys at the Pentagon is to select three to five things they want accomplished this year and not talk about a whole menu of things ... Because you just can't make major changes in the Defense Department.

"You really have to tighten priorities," he said. "Everything can't be a priority."

AMC's current commander, Gen. John G. Coburn, also appears skeptical about the prospect of substantive changes in procurement policies. "I have been around this acquisition reform business for many years [and] my observation is that you have a funnel effect ... You have a government bureaucracy that feeds an industry bureaucracy," he told the National Defense Industrial Association's tactical vehicle conference in Monterey, Calif. …

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